What L3 projects are worth your attention besides L1 and L2 clustering?

Author: 0XSTRUBE

Compiled by: Deep Tide TechFlow

In the past few years, Ethereum has made significant progress on its roadmap, completing the transition from Proof of Work (PoW) to Proof of Stake (PoS), known as "The Merge." Recently, the "Dencun" upgrade was implemented, including proto-danksharding, making Layer 2 transactions much cheaper.

(Source: growthepie)

Before Dencun, Layer 2 transaction fees were about $0.50, but now most Layer 2 chains have transaction fees of only a few cents. This change has greatly facilitated the expansion of new applications on Ethereum.

(Source: Artemis)

Since the Dencun upgrade, the daily transaction volume on Arbitrum and Base has surpassed that of the Ethereum mainnet, and this trend continues. Although there is still much work to be done on Ethereum's scalability, this is an important step in the right direction, with infrastructure significantly improved since the last cycle. In recent months, the activity and transaction volume on Arbitrum and Base chains have increased, which may just be the tip of the iceberg for what is to come in this cycle.

Layer 3 Expansion

The initial versions of Ethereum rollups are Optimism and Arbitrum, both of which are optimistic rollups. Currently, there are more and more Layer 2 optimistic and zero-knowledge rollups, most of which are classified as general-purpose. The choice of which rollup to run or build an application on depends on the required feature set and security requirements. For example, applications like Uniswap can run on general-purpose Layer 2 (such as Arbitrum One). However, if you are a crypto game or NFT project, or another application that requires higher throughput or extremely low transaction fees (like $0.0001), you may need different solutions. This is where Layer 3 comes into play.

Examples of Layer 3 frameworks include Arbitrum Orbit and zkSync Hyperchains. Although Layer 3 is still in its early stages, some changes and improvements are expected in the future. The overall idea of Layer 3 is to further scale Ethereum by creating highly customizable, cheap, fast, and interoperable chains with varying degrees of security and decentralization.

Degen Chain (DEGEN)

Degen Chain is an emerging innovative blockchain set to launch in January 2024, quickly gaining attention with a fully diluted valuation (FDV) exceeding $2 billion within three months of its launch.

Degen was initially launched on the Degen channel of Farcaster, a new social application that allows users to "tip" for quality content.

Degen is built using Arbitrum Orbit, settles on Base, and utilizes AnyTrust for data availability (DA). The initial hype around the chain led to a surge in total value locked (TVL), but it later stabilized, and the price of DEGEN adjusted accordingly.

Sanko (DMT)

Another interesting Layer 3 application is Sanko, which is another chain built using Arbitrum Orbit, settling on Arbitrum L2, and utilizing AnyTrust for data availability. Sanko primarily focuses on NFTs and gaming, leveraging the low cost and high throughput provided by Layer 3. The native token DMT of Sanko performed well in 2024.

Dream Machine is an interesting application of Sanko L3, which also serves as a platform combining social and gaming elements. Sanko.TV merges gaming and streaming entertainment, allowing users to purchase passes for their favorite streamers and gain access to private chat rooms, similar to the operations of Friend.tech.

Sanko showcases the customizability of Layer 3 chains, demonstrating their potential. The rise in DMT's price indicates sustained interest in the content built by Sanko, and the innovative nature of combining gaming and social elements presents an appealing value proposition. Social applications are beginning to gain momentum, making Sanko undoubtedly a project to watch.

The Future of Layer 3

Layer 2 mainnets have been live for several years and have made significant progress in scaling Ethereum. While the scalability roadmap continues to advance, highly customizable Layer 3 seems to be the logical next step. Many projects are already experimenting on Layer 3 and achieving varying degrees of progress.

However, an interesting use case and a brief hype do not necessarily indicate a good investment. In the two examples we discussed (DEGEN and DMT), the native tokens have experienced significant volatility, and these chains are far from proven. However, now that Layer 2 has scaled and transaction fees are only a few cents, opportunities and use cases have greatly increased. It is important to track the trends in application types brought about by increased throughput and customizability, as Layer 3 will undoubtedly present some interesting investment opportunities.